Encumbrance

An encumbrance is any right or restriction held by someone other than the owner that burdens a property, limiting the freedom to dispose of or use it or affecting its value, such as a mortgage, attachment, easement, long lease, usufruct or claim annotation. Most encumbrances pass with the property to a new owner, so they must be uncovered and dealt with before a sale or financing. In Saudi Arabia encumbrances fall into several groups: accessory rights in rem such as the registered mortgage, which follows the property into any holder's hands; original rights in rem derived from ownership, such as usufruct, habitation and easements (for example a right of way or drainage); judicial and administrative restrictions such as execution and precautionary attachments annotated on the deed record, suspension of a deed because of a dispute, and the ban on subdividing, merging or licensing land once owners are notified of a decision to start expropriation; and contractual restrictions such as a clause barring disposal, which is valid only for a reasonable period and a legitimate interest. Under the Real Estate Registration Law, leases and obligations over a property's use lasting ten years or more, and claims concerning rights in rem, must be annotated in the register, and no registration may be made if the register contains restrictions preventing disposal. Under the Civil Transactions Law, the seller must deliver the property free of any third-party right unknown to the buyer and warrants it against third-party rights predating the sale. In jointly owned buildings, a new owner is bound by the owners' association's articles and decisions, and the seller must disclose the unit's rights and obligations. An encumbrance report is therefore a core part of any due diligence.